[Federal Register Volume 64, Number 25 (Monday, February 8, 1999)]
[Proposed Rules]
[Pages 5982-5985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2834]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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  Federal Register / Vol. 64, No. 25 / Monday, February 8, 1999 / 
Proposed Rules  

[[Page 5982]]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 584

[No. 99-4]
RIN 1550-AB26


Regulated Activities; Exempt Savings and Loan Holding Companies

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) proposes to amend its 
regulations to clarify the circumstances under which certain multiple 
savings and loan holding companies are able to engage in the same 
activities as unitary holding companies. In accordance with the 
governing statute and regulations, multiple holding companies are 
exempt from restrictions on the types of business activities in which 
they and their non-thrift subsidiaries may engage, if all (or all but 
one) of their thrift subsidiaries were acquired in certain types of 
supervisory transactions and if all their respective savings 
association subsidiaries are qualified thrift lenders. To retain the 
focus of the multiple holding company exemption on the statutory 
purpose, the proposal would establish certain standards by which the 
OTS would determine whether a multiple holding company would be 
entitled to exempt treatment. This proposal is intended to channel the 
benefits of the multiple holding company activities exemption to 
companies that actually participate in the resolution of failing or 
failed thrifts and clarify OTS regulatory policy in an area that has 
been unsettled.

DATES: Comments must be received on or before April 9, 1999.

ADDRESSES: Send comments to Manager, Dissemination Branch, Information 
Management and Services Division, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, D.C. 20552, Attention Docket No. 99-4. Hand 
deliver comments to 1700 G Street, N.W., lower level, from 9:00 A.M. to 
5:00 P.M. on business days. Send facsimile transmissions to FAX Number 
(202) 906-7755, or (202) 906-6956 (if the comment is over 25 pages). 
Send e-mails to [email protected] and include your name and 
telephone number. Interested persons may inspect comments at 1700 G 
Street, NW., from 9:00 A.M. until 4:00 P.M. on business days.

FOR FURTHER INFORMATION CONTACT: Donna Deale, Manager, Supervision 
Policy, Office of Thrift Supervision (202/906-7488); Richard L. Little, 
Senior Counsel (Banking and Finance) (202/906-6447); or Kevin A. 
Corcoran, Assistant Chief Counsel for Business Transactions (202/906-
6962), Business Transactions Division, Office of the Chief Counsel, 
Office of Thrift Supervision, 1700 G Street, NW., Washington, D.C. 
20552.

SUPPLEMENTARY INFORMATION:

I. Background

    Over the past year, OTS has received inquiries from several 
different savings and loan holding companies about their eligibility 
for exempt multiple status under section 10(c)(3) of the Home Owners' 
Loan Act (``HOLA'').1 Because these inquiries have involved 
complex factual issues, including the details of transactions that 
occurred several years ago, and because OTS precedent exists only in 
the form of legal opinions, OTS is undertaking this proposed rulemaking 
in order to provide clearer guidance to the industry in a manner 
faithful to Congressional intent.
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    \1\ 12 U.S.C. 1467a(c)(3).
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    Section 10(c) of the HOLA 2 limits the types of business 
activities that savings and loan holding companies and their non-thrift 
subsidiaries may conduct generally to activities and services 
historically related to the thrift business and to activities approved 
by the Federal Reserve Board for bank holding companies under section 
4(c) of the Bank Holding Company Act.3 Exempt from these 
restrictions are all unitary savings and loan holding companies, i.e., 
holding companies that control only one savings association (``unitary 
holding companies''), provided that the subsidiary savings association 
meets the qualified thrift lender test. 4 The HOLA also 
provides that the activities restrictions do not apply to any multiple 
savings and loan holding company (``multiple holding company''), i.e., 
a holding company that controls more than one savings association, if

    \2\ 12 U.S.C. 1467a(c).
    \3\ 12 U.S.C. 1843(c).
    \4\ 12 U.S.C. 1467a(c)(3)(A).
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    (i) All, or all but 1, of the savings association subsidiaries 
of such company were initially acquired by the company or by an 
individual who would be deemed to control such company if such 
individual were a company--
    (I) Pursuant to an acquisition under section 13(c) or (k) of the 
Federal Deposit Insurance Act [12 U.S.C. 1823(c) or (k)], or section 
408 (m) of the National Housing Act [12 U.S.C. 1730a (m)]; or
    (II) Pursuant to an acquisition in which assistance was 
continued to a savings association under section 13(i) of the 
Federal Deposit Insurance Act [12 U.S.C. 1823(i)]; and
    (III) All of the savings association subsidiaries of such 
company are qualified thrift lenders * * *.5
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    \5\ 12 U.S.C. 1467a (c) (3). Section 408(m) of the National 
Housing Act was repealed by the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989, Title IV, Sec. 407, Pub. L. 
No. 101-73, 103 Stat. 363 (1989).

    This so-called ``exempt multiple'' treatment in section 10(c) of 
the HOLA has been implemented by the OTS at 12 CFR 584.2a(a)(1)(ii). So 
long as all of its savings association subsidiaries are qualified 
thrift lenders, an exempt multiple holding company may engage in the 
same activities as any unitary holding company under the HOLA.
    The exempt multiple structure proved to be a valuable incentive for 
attracting acquirors to resolve a number of ailing or failed 
institutions during the thrift crisis of the late 1980s and early 
1990s. Many unitary holding companies were reluctant to acquire failed 
associations if their only options were to combine a failed association 
with a healthy subsidiary or to hold the failed association separately 
and be forced to limit their activities. The exempt multiple structure 
enabled these holding companies to segregate their failed institutions 
while they resolved the problems associated with these failed 
institutions and to continue conducting the same range of activities as 
unitary holding companies.
    Despite its obvious supervisory benefits, the exempt multiple 
structure has been difficult for the OTS to

[[Page 5983]]

administer. In large part, this problem has arisen because the statute 
does not state how mergers and acquisitions after a supervisory 
acquisition should affect exempt multiple holding company status. For 
instance, section 10(c) of the HOLA does not mandate or prohibit exempt 
multiple treatment in any of the following situations:
     An exempt multiple holding company merges a subsidiary 
supervisory association, i.e., a subsidiary acquired in a supervisory 
transaction, with its non-supervisory savings association subsidiary.
     An exempt multiple holding company merges or consolidates 
with other companies, including other savings and loan holding 
companies.
     An exempt multiple holding company acquires additional 
savings association subsidiaries by merger with the company's existing 
supervisory association subsidiary.
     A unitary holding company, the savings association 
subsidiary of which is composed almost entirely of assets and 
liabilities acquired in supervisory transactions, seeks to establish a 
de novo thrift subsidiary and become an exempt multiple holding 
company.
    OTS believes that the exempt multiple provision in section 10(c) of 
the HOLA serves a limited but important purpose: to facilitate unitary 
holding company acquisitions of troubled thrifts that could not 
otherwise be accomplished without loss of the holding company's unitary 
status. Accordingly, the OTS is proposing to amend 12 CFR 
584.2a(a)(1)(ii) to delineate more precisely the circumstances under 
which exempt multiple status will be recognized. In general, exempt 
multiple status will be available only where a qualifying supervisory 
acquisition otherwise would threaten existing unitary status. However, 
because the language of section 10(c)(3) does not restrict the relative 
timing of supervisory and non-supervisory acquisitions, a unitary 
holding company that acquired its sole subsidiary savings association 
in a supervisory transaction and then acquires an additional 
association in a non-supervisory transaction will be entitled to exempt 
multiple status. When exempt multiple status is relinquished (for 
example, where a holding company acquires a savings association in a 
supervisory transaction, but does not continue to hold it 
separately,6 or where a holding company qualifies as an 
exempt multiple, but acquires another non-supervisory association and 
holds it separately), the OTS believes that exempt multiple treatment 
should not be reactivated by later reorganizing the subsidiary 
associations.
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    \6\ If an exempt multiple holding company with two supervisory 
savings association subsidiaries were to merge the two subsidiaries, 
OTS would not treat the holding company as having relinquished its 
exempt status.
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    Under the proposal, a holding company will be entitled to exempt 
multiple status, if (1) the holding company controls directly or 
indirectly multiple savings associations after a supervisory 
acquisition, and the subsidiary association that the holding company 
acquired in the supervisory acquisition continues to exist as an 
identifiable savings association subsidiary of the holding company; or 
(2) the holding company controls a savings association continuously 
after acquiring it in a supervisory acquisition and later acquires an 
additional association (including by establishing a de novo 
association) as a separate subsidiary in a non-supervisory acquisition.
    In cases where an exempt multiple holding company controls a 
subsidiary supervisory association and later causes the association to 
engage in a merger, consolidation, or acquisition, the OTS will 
determine whether the supervisory association has existed continuously 
since the supervisory acquisition. If the later combination causes the 
supervisory association to lose its essential character, the OTS no 
longer will consider the holding company to be an exempt multiple. In 
making this determination, the OTS, as appropriate, will take into 
account the corporate identity of the surviving savings association as 
specified in its charter; the relative sizes of the savings 
associations or other depository institutions involved in terms of 
assets or liabilities, or both; and such other factors on a case-by-
case basis as the Director considers appropriate. The OTS is interested 
in comments on whether the agency should apply different or additional 
criteria.
    The merger criteria would apply only to mergers, consolidations, or 
acquisitions by existing exempt multiple holding companies and not to 
such transactions by unitary holding companies (except where a unitary 
holding company seeks to preserve the supervisory status of its 
subsidiary association). The reason is that a unitary holding company 
(other than one whose sole thrift subsidiary was acquired in a 
supervisory transaction) cannot achieve exempt multiple status through 
later mergers, consolidations, or non-supervisory acquisitions.
    The proposed rule would have these practical consequences:
     An exempt multiple that merged its savings association 
subsidiaries to become a unitary would thereafter become eligible for 
exempt multiple status only if it later made a qualifying supervisory 
acquisition, unless all the savings association subsidiaries merged 
were acquired in supervisory transactions.
     The qualifying supervisory status of a savings association 
would not transfer from the initial acquiring holding company to a 
succeeding acquiror, with two exceptions. In general, once a savings 
association in supervisory status has been restored to health, a new 
holding company may not acquire it from the original acquiror and still 
claim supervisory status for the savings association.
     The first exception to the general rule against 
transferability of supervisory status is that a succeeding acquisition 
may itself qualify as a supervisory acquisition under section 10(c).
     The second exception is that if an existing exempt 
multiple holding company reorganizes internally and inserts a newly 
formed holding company into its structure, then the newly formed 
company may claim exempt multiple status.
    The proposed rule would apply to all existing multiple holding 
companies, as well as all companies that may seek exempt multiple 
status on the basis of supervisory acquisitions that occurred before 
the effectiveness of the final rule. The OTS believes that efforts to 
grandfather particular classes of holding companies would be cumbersome 
and likely to lead to inconsistent results. However, it is important 
that holding companies have certainty as to whether they may exercise 
unitary powers. Therefore, OTS proposes to open a sixty-day ``window'' 
following the effective date of the final rule, during which holding 
companies that believe they may be entitled to exempt status based on 
past acquisitions and on earlier rulings or opinions by OTS may seek 
confirmation of that status from OTS. After the 60-day window closes, 
OTS will review all later requests for exempt multiple treatment 
against the criteria set forth in the regulation, even where the 
supervisory acquisitions that support the exempt multiple request 
occurred before the effective date of the regulation.
    A multiple holding company that does not receive confirmation of 
exempt status and that does not qualify for exempt status under the 
regulation will have two years after the effective date of the final 
rule to cease or divest any activities that are not permissible for

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multiple holding companies under section 10(c).

II. Solicitation of Comments

    The OTS is asking for comment on the proposal. Specifically, the 
OTS seeks comment on:
     Whether the proposed amendment will accomplish its stated 
purposes?
     Whether a different approach would better accomplish the 
stated purposes?
     Whether, in applying the merger criteria to mergers, 
consolidations, or acquisitions by existing exempt multiple holding 
companies, OTS should take into account specific factors in addition to 
the corporate identity of the surviving savings association and the 
relative sizes of the savings associations or other depository 
institutions involved?

III. Executive Order 12866

    The Director of the OTS has determined that this proposed rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

IV. Regulatory Flexibility Act Analysis

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, the 
OTS certifies that this proposal will not have a significant economic 
impact on a substantial number of small entities. The proposal 
clarifies the rules governing exempt multiple status and is designed to 
reduce the burden on multiple holding companies to determine whether 
they are entitled to exempt status. Moreover, the proposed rule would 
provide a procedure permitting multiple holding companies that may be 
relying on past rulings or opinions of the OTS to claim exempt status, 
to confirm that status after the effective date of the final rule.

V. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
federal mandate that may result in expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, or $100 
million or more in any one year. If a budgetary impact statement is 
required, Section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. The OTS has determined that 
the proposed rule will not result in expenditures by state, local, or 
tribal governments or by the private sector of $100 million or more. 
The proposed rule is directed solely to thrift holding companies. It 
clarifies the rules governing exempt multiple status and is designed to 
reduce the burden on holding companies to determine whether they are 
entitled to exempt status. Accordingly, this rulemaking is not subject 
to Section 202 of the Unfunded Mandates Act.

VI. Paperwork Reduction Act

    OTS invites comment on:
    (1) Whether the proposed information collection contained in this 
proposal is necessary for the proper performance of OTS's functions, 
including whether the information has practical utility;
    (2) The accuracy of OTS's estimate of the burden of the proposed 
information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (5) Estimates of capital and start-up costs of operation, 
maintenance and purchases of services to provide information.
    Respondents are not required to respond to this collection of 
information unless it displays a currently valid OMB control number.
    The collection of information requirements contained in this 
proposal have been submitted to the Office of Management and Budget for 
review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Paperwork Reduction 
Project (1550), Washington, D.C. 20503, with copies to the Regulations 
and Legislation Division, Chief Counsel's Office, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, D.C. 20552.
    The collection of information requirements in this proposed rule 
are found in 12 CFR 584.2a(a)(3). OTS requires this information in 
order to determine whether certain holding companies are or may be 
eligible for exempt multiple holding company status. The likely 
respondents are savings and loan holding companies.
    Estimated average annual burden hours per respondent: 20.
    Estimated number of respondents: 30.
    Estimated total annual reporting burden: 600.
    Start up costs to respondents: none.

List of Subjects in 12 CFR Part 584

    Administrative practice and procedure, Exempt savings and loan 
holding companies, Holding companies, Reporting and recordkeeping 
requirements, Savings associations, Securities.

    Accordingly, the Office of Thrift Supervision proposes to amend 
chapter V, title 12, Code of Federal Regulations, as set forth below.

PART 584--REGULATED ACTIVITIES

    1. The authority citation for part 584 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1468.

    2. Section 584.2a is amended by revising paragraph (a)(1) 
introductory text and paragraph (a)(1)(ii), redesignating paragraph 
(a)(2) as paragraph (a)(3), and adding new paragraph (a)(2) to read as 
follows:


Sec. 584.2a  Exempt savings and loan holding companies and 
grandfathered activities.

    (a) Exempt savings and loan holding companies. (1) The following 
savings and loan holding companies are exempt from the limitations of 
Sec. 584.2(b):
* * * * *
    (ii) Any savings and loan holding company (or subsidiary thereof) 
that controls more than one savings association if all, or all but one 
of the savings association subsidiaries of such holding company were 
initially acquired pursuant to an acquisition under section 13(c) or 
13(k) of the Federal Deposit Insurance Act or section 408(m) of the 
National Housing Act, as in effect immediately prior to the date of 
enactment of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (``supervisory acquisition''), and all of the 
savings association subsidiaries of such holding company are qualified 
thrift lenders as defined in Sec. 583.17 of this chapter, provided that 
the Director determines that--
    (A) Except in the case of a multiple holding company that has been 
formed in connection with an internal reorganization, such holding 
company has continuously controlled a savings association acquired 
pursuant to a supervisory acquisition at all times since such 
supervisory acquisition; and
    (B) The savings association acquired through a supervisory 
acquisition on which the exemption contained in this subparagraph is 
based has continuously existed as an identifiable savings association 
subsidiary of such holding company at all times since such supervisory 
acquisition, provided that if

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an exempt multiple savings and loan holding company merges its savings 
association subsidiaries to become a unitary savings and loan holding 
company, the resulting savings association subsidiary will be 
considered to have been acquired in a non-supervisory transaction, 
unless all the savings associations merged were acquired by the holding 
company in supervisory transactions.
    (2)(i) For purposes of paragraph (a)(1)(ii)(B) of this section and 
subject to the restrictions therein, if any savings association 
subsidiary that was acquired in a supervisory acquisition engages in 
any acquisition, merger, or consolidation after the subsidiary's own 
supervisory acquisition, the Director, in determining whether that 
savings association has existed continuously since such supervisory 
acquisition, will consider the following factors, as appropriate:
    (A) The corporate identity of the surviving savings association as 
specified in its charter;
    (B) The relative sizes of the holding companies, savings 
associations or other depository institutions involved in terms of 
assets or liabilities, or both; and
    (C) Such other factors on a case-by-case basis as the Director 
considers appropriate.
    (ii) The supervisory status of a savings association may not be 
transferred from the initial acquiring holding company to a succeeding 
acquiror, unless the succeeding acquisition itself qualifies as a 
supervisory acquisition under section 10(e) of the Home Owners' Loan 
Act, or unless an internal reorganization of the initial acquiror 
causes an acquisition by a newly formed holding company.
    (iii) A holding company that believes it is or may become entitled 
to exempt multiple status based on rulings or opinions that the OTS 
issued prior to [insert effective date of regulation] may request 
confirmation of that status from the OTS prior to [insert date 60 days 
after effective date of regulation]. Such requests must contain a 
detailed explanation of the basis for exempt multiple status. After 
[insert date 60 days after effective date of regulation], the OTS will 
apply only the provisions in paragraphs (a)(1)(ii) and (a)(2) of this 
section to requests for exempt multiple status. A multiple holding 
company that does not receive confirmation of exempt multiple status 
from the OTS and that does not qualify for exempt status under the 
regulation, will have two years after the effective date of the final 
rule to cease or divest any activities that are not permissible for 
multiple holding companies under section 10(c).
* * * * *
    Dated: February 1, 1999.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 99-2834 Filed 2-5-99; 8:45 am]
BILLING CODE 6720-01-P